2022 Predictions: Growing emphasis on risk governance in the insurance industry

It was great to see how so many companies showed incredible adaptability during COVID-19. While initially, we thought a lot of the insurance market would be at a loss as to what to do next, instead they were able to show resilience relatively quickly and technology was the enabler of that.

COVID was a real catalyst for change and businesses reacted to this in different ways. The two key levers that people are going to pull are really going to depend on their last 18 months. They’re either going to look at how can they can generate more opportunity or they’re going to look at the performance of the organisation, which is how efficient they can be. And which of those two levers they choose is probably going to be determined by how well they did.

One area where we see the potential for ongoing change and innovation is in risk governance. The concept of risk is fundamental to the insurance industry, of course, but insurance companies themselves face a range of risks. For example, in large global organisations in particular, the very complexity of the business – with multiple divisions and subsidiaries operating in different countries and using different currencies – creates a fundamental risk of overreaching, ie writing more risk than they have the capacity to cover.

In response, insurers have established sizable governance and compliance functions that are designed to avoid costly breaches of the regulations that set out how they manage their finances. The most important of these are the European Union’s Solvency II regime, which seeks to protect consumers by requiring firms to maintain sufficient capital to ensure they can meet their obligations to policyholders, and the Senior Managers and Certification Regime, which makes individuals in an insurance company responsible for the organisation’s conduct and confidence.

So how can insurers create the necessary oversight across their operations to protect themselves against these risks? In the past they have attempted to do so using traditional manual processes, supported by email and spreadsheets, but this can be extremely time-consuming and doesn’t provide the visibility insurers need. More recently, many have started to digitise their authority management processes, but this too can be expensive, particularly if carried out in a piecemeal fashion.

This is where regulatory technology can provide the solution. RegTech is bespoke technology designed to help financial services companies comply with their regulatory requirements, using advanced technologies such as artificial intelligence, cloud computing and machine learning to help minimise the risk of human error by automating key processes.

There are products, such as Authority Hub, that have been designed to solve a specific set of problems around giving insurance organisations visibility of their total risk exposure. This enables insurers to redefine the way they manage and govern underwriting, claims and non-insurance authorities, helping them to adhere to regulations such as Solvency II and avoid conduct breaches.

This leading-edge technology automates the creation, amendment, and management of delegated authorities, reducing errors and freeing up valuable administrative time. It gives visibility of the spread of authority throughout the organisation’s hierarchy and, by ensuring that authority information is up to date and easily accessible for the end user, it reduces the risk of an authority breach. It also helps the compliance function by automatically creating the evidence and audit trails required for regulatory purposes.

By giving insurance organisations the oversight of their total risk exposure that they need, this reduces the risk of overwriting risk.

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